Cash Basis vs. Accrual Basis Accounting

The difference between the two methods is simple: In cash basis accounting, you realize income or expenses on the day you receive payment or pay a bill. In accrual basis accounting, you realize income or expenses on the day you record the sale or purchase, regardless of whether a payment is made.

For instance, in January, you sell $200 worth of products to ABC Company, but they don't pay you until March. In accrual basis accounting, the income from the sale is realized in January, the date of the sale. In cash basis accounting, the income would be realized in March, the date the payment was made.

The Accounting software is designed to work most efficiently in the accrual basis; all you need to do is click the Record button after you've entered a transaction in the Sales or Purchases windows. However, you can use the Order Status to operate in cash basis accounting.

To record transactions using the cash basis, enter your invoices and purchase orders as usual, but use the Order status instead of Invoice status to record the transaction. When a transaction you've entered is paid by a customer, or you pay a vendor, you can change the Order to an Invoice. To do this, open the window in which you entered the transaction and enter the customer's or vendor's name. A list containing all pending transactions for that customer or vendor appears. Choose the transaction you want from the list and click the Use Pending button. Change the date of the transaction so it reflects the date the payment was made, then click Record. After the transaction is recorded, use the Bill Payments or Customer Payments windows to enter the payment.

How to generate cash basis receivables and payables reports

To see how much money customers owe you, select Index to Reports from the Reports menu. Double-click the Sales (Customer Summary) Report from the list in the Index to Reports window. The Report Selection window appears. Mark the All Customers selection and select Orders from the Invoice Status list. Make your own choices for the remaining selections in the window and click OK. The Index to Reports window reappears. Click Display to view the report on your computer screen. The report will show the balances of all open sales.

To see how much money you owe to vendors, select Index to Reports from the Reports menu. Double-click the Purchases (Vendor Summary) Report from the list in the Index to Reports window. The Report Selection window appears. Mark the All Vendors selection and select Orders from the PO Status list. Make your own choices for the remaining selections in the window and click OK. Click Display to view the report on your computer screen. The report will show the balances of all open purchases.